CPA Payroll Tax Guide 2017

Amounts received under life insurance contracts are excluded from income. Another exclusion from income is the interest received on certain state and local bonds. In addition to the employer-side taxes that fund Social Security and Medicare, there is a third payroll tax that funds Unemployment Insurance (UI). Unemployment Insurance is a joint federal-state social insurance program which insures workers against an unexpected loss of income if they lose their jobs.

• All quarterly tax/wage reports and payments must be received by the Department on or before the due date.
• After accounting for sales taxes, which reduce the purchasing power of earnings, the tax wedge in the United States in 2019 was 31.6 percent.
• The increase represents a $539.40 cost to an employee earning $127,200 or more.
• A two-tiered rate structure of 26% and 28% is assessed against AMT taxable income.
• For head of household filers, the personal exemption phaseout threshold is $287,650 in 2017.
• These two tax wedges, single and family, are based on the same pretax wages (referred to as labor cost) because a “family” refers to a two-child family with just one income earner.

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The employer unemployment taxable wage base will increase to $33,500 for 2017. All unemployment quarterly tax and wage reporting is required to be done electronically. Electronic payments are available for all employers and are required for employers reporting 50 or more employees in any calendar quarter and for all third-party processors. The state unemployment insurance (SUI) taxable wage base will remain at $18,500 for calendar year 2017.

For more information, refer to the Instructions for Form 940Publication 926, Household Employer’s Tax GuidePublication 926, Household Employer’s Tax Guide. Employers with 25 or more employees are required to file their tax report via the Web-based reporting application at /uitax and their wage report using the same application. All quarterly tax/wage reports and payments must be received by the Department on or before the due date.

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The marginal tax wedge is generally higher than the average tax wedge due to the progressivity of taxes on labor—as workers earn more, they face a higher tax wedge on their marginal dollar of earnings. The marginal tax wedge in the U.S. is 38.5 percent, compared to an average tax wedge of 29.8 percent. The tax burden on labor in the U.S. remains lower than prior to the Tax Cuts and Jobs Act (TCJA), which reduced individual income tax rates beginning in 2018, reducing the tax burden on labor. The tax wedge in 2019 was 2 percentage points lower than in 2017, when single childless workers faced a tax wedge of 31.8 percent.

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Second, the federal government levies payroll taxes on both employees and employers. The economic burden, or incidence, of employer payroll taxes ultimately falls on wage earners. Payroll taxes fund federal programs such as Social Security, Medicare, and Unemployment Insurance (UI). The corporate income tax generally only applies to C corporations (also known as regular corporations). When corporate dividend payments are made or capital gains are realized income is taxed again at the individual-shareholder level according to the individual tax system (discussed above).

To understand the differences in detail, refer to this Investopedia article. Since 2006, we’ve been helping small to midsize businesses run more efficiently by combining the streamlined payroll management capabilities of an industry leader with the kind of personal attention that a local firm can provide. Let EPAY Systems help you manage the complex payroll and tax management processes. Get a live demonstration of our human capital management system, which helps you drive workforce efficiencies, reduce wage and administrative costs and improve labor compliance. The federal minimum wage provisions are contained in the Fair Labor Standards Act (FLSA).

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Social Security and Medicare payroll taxes are collected together as the Federal Insurance Contributions Act (FICA) tax. FICA tax rates are statutorily set and therefore require new tax legislation to be changed. In other words, jobs are worth what they’re determined to be worth and an employer’s share of payroll taxes are part of the costs.

For example, if you have a $100,000 salary at your job and earn an additional $40,000 from consulting work, only $28,400 of your consulting income will be taxable for Social Security purposes. Specifically, as a self-employed individual, you are considered to be both the employee and employer, and therefore must pay both sides of the payroll tax. Collectively, this is officially known as the self-employment tax.

• The marginal tax wedge is generally higher than the average tax wedge due to the progressivity of taxes on labor—as workers earn more, they face a higher tax wedge on their marginal dollar of earnings.
• As a benchmark, economists often turn to the Haig-Simons comprehensive income definitions which can differ from the measure of income used in computing a taxpayer’s taxes.
• For these types of entities, business income is taxed only once, at individual income tax rates.
• Federal excise taxes are levied on specific goods, such as transportation fuels, alcohol, and tobacco.

1 includes broad changes to the federal tax system after the 2017 tax year. On the individual side, the act structurally changes the individual income tax system by repealing personal exemptions and increasing the standard deduction. Rates and 2017 U S. Payroll Tax brackets are modified, as are many individual income tax expenditures.

Eight states don’t have an income tax, and one (New Hampshire) has no wage income tax. Note that employers need to withhold the 0.9% additional Medicare tax on all wages in excess of $200,000 in a calendar year, regardless of filing status. In December 2017, Congress passed the first major overhaul of the U.S. tax code in more than 30 years. The law, colloquially known as the Tax Cuts and Jobs Act, will have a far-reaching impact on both employers and employees. Specifically, employers confront an altered landscape when it comes to certain fringe benefits and pay policies. And, you will have to adjust your payroll system very quickly to accommodate these changes, as no transition relief has been provided.

These thresholds are not inflation-adjusted, and thus they apply to more employees each year. Modified AGI is AGI increased by the amount excluded from income as foreign earned income. Other sources include estate and gift taxes, customs duties and fees, and deposits of earnings by the Federal Reserve System. During both the early 2000s recession and the Great Recession (2007–2009), the share of net income fell sharply, reflecting losses in the corporate sector. There is an additional standard deduction for the elderly and the blind.

The maximum Social Security benefit for workers retiring at full retirement age in 2017 will be $2,687 per month, up from $2,639 per month in 2016. A married couple could each give a child $14,000 for a total gift of $28,000. The exemption amount is indexed for inflation in $1,000 increments.